Exercise 1C: Initial Consolidation as of Date of Acquisition
CheapBeer Inc. purchased 100% of the outstanding stock of FancyBrew Inc. for purposes of horizontal consolidation and paid $750,000 cash for the stock. The balance sheets for the two companies immediately
after the acquisition are as follows:
FancyBrew Inc.										CheapBeer Inc.
Balance Sheet as of 7/1/20X1										Balance Sheet as of 7/1/20X1
Assets					Liabilities & Owners' Equity					Assets				Liabilities & Owners' Equity
		Book Value	Fair Market Value				Book Value	Fair Market Value				Book Value				Book Value
Cash		$0	$0		A/P		$75,000	$75,000		Cash		$250,000		A/P		$175,000
A/R		60,000	50,000		Notes Payable		25,000	25,000		A/R		175,000		Notes Payable		150,000
Inventory		75,000	80,000		Mortgage Payable		50,000	50,000		Inventory		350,000		Mortgage Payable		300,000
Net Fixed Assets		150,000	200,000		Total Liabilities:		$150,000			Net Fixed Assets		200,000		Total Liabilities:		$625,000
Patents		0	25,000							Investment in Subsidiary		750,000
					Common Stock		50,000							Common Stock		250,000
					Retained Earnings		85,000							Retained Earnings		850,000
					Total Equity:		$135,000							Total Equity:		$1,100,000
Total Assets:		$285,000			Total Liabilities & O.E.:		$285,000			Total Assets:		$1,725,000		Total Liabilities & O.E.:		$1,725,000
A) Complete the below Consolidation Entries for the "Consolidation & Elimination Worksheet" for this acquisition as of the date of the acquisition by entering the proper debit and credit amounts in the gray-shaded cells below.
			Trial Balances		Combined	Consolidation Entries				Consolidated Balance
Account			CheapBeer	FancyBrew		Entry	Debit	Entry	Credit
Cash			$250,000	$0	$250,000								Entry "A" Eliminate the subsidiary's equity against the parent's investment account
A/R			175,000	60,000	235,000			"B"
Inventory			350,000	75,000	425,000	"B"
Net Fixed Assets			200,000	150,000	350,000	"B"
Patents			0	0	0	"B"							Entry "B" Adjust the net assets of the subsidiary to Fair Market Value and offset to the investment
Investment in Subsidiary			750,000	0	750,000			"A"
								"B"
								"C"
Goodwill			0	0	0	"C"
A/P			(175,000)	(75,000)	(250,000)								Entry "C" Any remaining amount in the investment account gets eliminated to Goodwill
Notes Payable			(150,000)	(25,000)	(175,000)
Mortgage Payable			(300,000)	(50,000)	(350,000)
Common Stock - CheapBeer			(250,000)		(250,000)
Common Stock - FancyBrew				(50,000)	(50,000)	"A"
Retained Earnings - CheapBeer			(850,000)		(850,000)
Retained Earnings - FancyBrew				(85,000)	(85,000)	"A"
		Totals	$0	$0	$0		$0		$0	$0